Payroll and Bookkeeping Businesses, and Others: A New Lease of Life in Challenging Times
Rising operating and materials costs, funding debts, Covid loan paybacks – as business growth coaches who keep abreast of the market, we know these factors are pushing up business insolvency rates across the country.
And the figures bear this out. There were 1,947 such insolvencies in the UK in January 2024 alone. The month before, 2,002. The previous highest months were March and May topping out at 2,457 and 2,552, respectively. In fact, according to the BBC, we’re on track for the most firms going bust in one year since 2009.
It’s perhaps unsurprising, then, that many smaller businesses – bookkeeping and payroll specialists are good examples – are contemplating what they see as the lesser of two evils: shutting up shop, rather than getting drawn into terminal decline.
But it really doesn’t have to be this way. The owners of these businesses have options beyond locking the office door for the last time.
Sell up (but do it properly)
The more obvious of these, perhaps, is exiting the business by selling it. This serves the dual objectives of enabling an owner to leave behind the pressures and stress of running a business in a difficult economy, and to earn a potentially significant sum of money in the process.
But it’s important to understand that selling up is not a simple or instantaneous process, so as a knee-jerk reaction to an economic downturn, it never works.
As we explored in an earlier post, exiting your business means finding the optimum combination of Timing, Approach, Buyer, and Sale (TABS) that enables you to pass on the baton of a going concern and secure an appropriate financial outcome for yourself.
And whilst every business is different, exit planning generally needs at least two years to enable you to clearly demonstrate and document what buyers will be looking for - profits, a positive cashflow, resilience in your business model, and more.
So, when this isn’t an option – or even if it is - what other ways are there to keep your payroll, bookkeeping, or other smaller business’s doors open?
Roll-up strategy: strength in numbers
One possibility that we can advise you on here at Lesley Jones is that of “rolling up” your businesses with similar or complementary businesses. This creates a larger entity with multiple synergies, greater economies of scale, larger turnover, and therefore greater resilience.
Combining several different “fragmented”, or niche, businesses into one entity in this way supports stronger performance in a challenging market – after all, a larger ship is steadier in a storm than a smaller vessel!
Often, payroll and bookkeeping businesses, in particular, are sound candidates for this kind of evolution. Why? Because they’re indispensable services; every business needs them.
But these businesses customers also often expect more from payroll services and bookkeepers than they can deliver through one small concern alone – and this is where rolling-up adds marketability, too.
Simple enough in principle, then – but how does it work in practice?
How we do roll-up
The process of rolling up involves merging several companies to present a more attractive opportunity to an investor or buyer (because larger companies are usually valued at a higher multiple of earnings than smaller ones), who then buys the merged businesses as one. And the owners of the companies being merged get cash and shares in return for their equity.
It's a win-win; the investor or buyer gets a viable return, the merged businesses pool resources and customers to swim strongly against the tide of insolvency, and customers get access to a wider range of services and greater service availability.
At Lesley Jones, our business coach services help you at every stage of this process. From advising you on valuing your company, to sourcing other similar businesses to form the roll-up; from helping you work with financial and legal experts to complete due diligence and validate the merger; to ensuring that you, as a business owner, get the payout you deserve - we’re with you for the entire journey.
There are two ways to avoid going under: stop trading, or trade up. We’d prefer to help you with the latter.
To find out more about how we can help your business complete a roll-up merger to help it survive and thrive in challenging times , get in touch today.